Terry Allen started the Terry’s Tips in 2001 as an educational newsletter where various options strategies were tested in real time with real dollars. As many as eight portfolios were simultaneously carried out, each one in a separate brokerage account and paying full commissions. Subscribers saw every trade in every portfolio, and could follow one or more of the strategies in their own accounts, either on their own or through an auto-trade service offered by several brokers where all the portfolio trades were duplicated in their own accounts.
Over the years, many of these strategies enjoyed consistent gains for long stretches of time, only to see them all disappear in one disastrous day or week. One strategy, however, seemed to out-perform all the other strategies over the long run. We had dubbed it the 10K Strategy (because it was neither a sprint or a marathon, but something in between).
For the past five years ending through 2021, the 10K Strategy has notched average annual gains of over 60% in our actual portfolios after paying all the commissions.
For the first five months of 2022, extreme volatility came along (something that this strategy does not like), and we lowered our risk by retaining about half our portfolios in cash. The market was down badly (S&P 500 off over 18%, the Nasdaq down 22%) but the composite 10K Strategy portfolios gained over 10% over these five months. This works out to a 20%+ gain based our amount at risk.
The 10K Strategy is sort of like writing calls, but on steroids. Instead of buying stock and selling calls against your shares, we buy longer-term options (both puts and calls) which decay at a much slower rate than the shorter-term (usually weekly) options that we sell. Since these longer-term options cost a fraction of what the stock would cost, the potential return on investment is considerably higher with this options strategy.
The key to the strategy is the difference between the decay rates of the long and short options. The major challenge is managing risk by selecting strike prices both above and below the stock price, and balancing the risk profile of the positions on a daily basis.
Unlike owning stock, longer-term options are deteriorating assets, just like the shorter-term options that we sell. Maintaining a comfortable risk profile requires nimble trading and balancing the positions essentially every working day or week.
In short, it takes a lot of work. For this reason, most Terry’s Tips subscribers choose to select one or more of our portfolios (most based on ETF underlyings such as SPY, IWM, QQQ) and sign up for an auto-trade service to have all these trades automatically be made in their accounts.
A broker you have probably not heard of, Tradier, coupled with a Toronto-based broker called Global AutoTrade, performs this auto-trade service for a flat commission fee of only $10 per month for our subscribers, saving them hundreds if not thousands of commission dollars each year.
Who is Terry Allen? Terry earned his MBA at the Harvard Business School and eleven years later, completed all the requirements except the dissertation for a Doctorate in Business Administration at the University of Virginia. As part of his academic work, he created a statistical model which calculated the theoretical value of any option based on several measurable variables. The options market was just getting established, and option prices were extremely inefficient (either too-high or too-low).
At this point, he dropped out of school and got a seat on the Chicago Board of Options and traded as a market maker on the floor of the exchange. His model enabled him to make extraordinary gains for several months until two professors at the University of Chicago published a similar model (only one variable not in Terry’s model). This model, called the Black-Scholes model, (later to earn these professors a Nobel Prize), gave every trader the same advantage that Terry had enjoyed, and his extraordinary earnings were whittled away.
He returned to Virginia to complete his Doctorate, but was hopelessly addicted to options trading which he has continued to do virtually every day the market has been open ever since. Options trading has been quite profitable for him, and enabled him to give away millions of dollars to charitable causes in his home state of Vermont, including building a large outdoor swimming pool for the Burlington Boys and Girls Club and giving away hundreds of thousands of dollars in scholarship aid to first-in-family college students at Champlain College where he served as a trustee for eleven years.
For nearly two decades, Terry has carried out personally or managed the portfolio trades of the Terry’s Tips portfolios. In 2019, he brought in another (younger) experienced trader to manage these portfolios using the 10K Strategy, and the recent successful results are largely due to the efforts of his associate who totally understands the trading rules developed over the years at Terry’s Tips.
How to carry out the 10K Strategy: We have published a White Paper which spells out the precise Trading Rules for carrying out the 10K Strategy. This White Paper is delivered to each new Terry’s Tips subscriber at the outset of his or her subscription. Many subscribers sign up for a single month and learn all these Trading Rules, and watch the portfolios evolve each week for a month. Then they cancel and carry it out on their own using an underlying that they like (any stock or ETF which trades options can be used as an underlying security). That is fine with us.
Other subscribers realize the volume of effort involved in carrying out this strategy, and they continue on with us (often for many years) using an auto-trade service provided by some brokers, including Tradier. This is even finer with us.